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Jensen: American Woodmark Price Hikes Will Boost Margins

As inflation pressures grow, cabinet maker puts through increased pricing that may help stock halt slide

Inflation appears to be impacting many sectors, including food, gasoline and manufacturers and does not seem to be short-term, Real Money’s Bret Jensen argues.

“Far from being temporary or transitory, inflation more and more seems to be persistent and all around us,” Jensen wrote in a recent Real Money Pro Column.

Manufacturers in the home furnishing and building supplies sectors are “bedeviled right now by raw material increases as well as the gumming up of the global supply chain,” Jensen write. “However, both sectors are still seeing strong demand.”

As price increases go through, the immediate concern for profits eases for individual companies.

Jensen took a look at shares of American Woodmark Corp.  (AMWD) - Get American Woodmark Corporation Report, which makes cabinets and vanities. The stock has declined by at least one-third from recent highs, but the downtrend trend appears to be ending, Jensen wrote.

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“Shares of American Woodmark shares seem to be bottoming as the maker of cabinets and vanities puts through price increases of its own,” he wrote.

American Woodmark’s recent quarterly results missed expectations because of what the company called "evolving inflationary pressures outpacing its pricing actions taken across all its channels,” American Woodmark said it is increasing prices for some of its products that will likely increase margins for the next several quarters.

Consumers are still remodeling their homes which is a positive sign for the kitchen and bathroom cabinet maker, Jensen notes.

“Demand is certainly still there as American Woodmark saw percentage growth in the high teens in its repair and remodel sales channel as well as upper single-digit growth in its new construction sales channel last quarter,” he wrote.

Investors will find that the stock is not expensive and is about 10 times the profit projections of 2022.

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